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Seven Reasons Why I Wouldn't Own Apple Stock Now

Before some readers send me automatic angry e-mails, which seem to be the reflex response to anyone who is not bullish on Apple, let me briefly state that I was bullish on the stock for a long time.

I loved Apple’s products, its marketing, and thought the Apple stores were sheer genius, especially with the “Genius Bar.” I always asked, why doesn’t Microsoft, with all its billions of dollars, do this? Well, MSFT finally started imitating Apple, with limited success. Too little, too late.

I turned bearish on Apple stock for various reasons in late August this year. (See my postings on Twitter.com.) In our advisory services, such as the Wellington Letter, I started warning that soon we would see “buyer exhaustion.” Was there any money manager who didn’t own the stock? When everyone is in, the smallest hint of disappointment can turn into a selling binge.

On September 21, the stock hit an all-time high of $705. That was the “exhaustion” point. Thereafter, I concluded that an important top could be in place and that a meaningful decline was ahead.

My downside target was $520, which seemed crazy when the stock was at $700. My reasons:

1. Every release of a new product under the new CEO had disappointed the fans. For me, this establishes a trend. Now that the Steve Jobs product line has been exhausted, will the CEO be able to come up with new products. I haven’t heard of any.

2. There was a universal belief that Apple was a “one decision stock,” where you would only have to decide to buy, and never to sell. History shows that this never works. Either the management fails, or the competition jumps ahead, or the economy fails.

3. My analysis of the charts and price/volume suggested big professional selling. The rally to the top from late July and mid-September clearly showed significant “distribution,” which is when the informed money sells to the naïve money that listens too much to Wall Street analysts.

The plunge started after September 21 and accelerated into the November 16 bottom, making a closing low of $527.

On Friday, Nov. 16, I wrote:

AAPL saw a washout today, making a low of $505. It broke our downside target of $520 intraday, a target we gave at much higher levels when it seemed ludicrous to some of our friends. After all, wasn’t it going to go to $1,000? Well, the stock closed at $527, which gives it a daily “key reversal.” It should rally to the $581 area. After that, we will have to take another look.

On Nov. 19 Apple was up a big $38. The rally took Apple to a closing high of $589 on November 29,very close to my target.

Since that time I have gotten more bearish on the stock for the long term. The bears are still in the vast minority. History shows that the majority is usually wrong. Here are the negatives I see for Apple now:

1. The new CEO has not shown that he has the ability to keep Apple moving ahead. In fact, the signs point in the opposite direction. IPad 3 disappointed and became “the New iPpad.” The iPhone 5, which had originally been expected became the iPhone 4S. When iPhone5 finally came out this year, it disappointed. The mini-iPad is overpriced. Historically, when companies adapt the attitude that its product is worth more than others just because of the logo, it’s the start of the downturn. Remember Kodak, Sony, Polaroid, etc.?

2. No new products originated. Since Steve Jobs left, all products were still those started under Jobs.

3. The competition has just jumped over the iPhone 5 with the Galaxy S3. It has many more features. Look at the YouTube video on “50 reasons why Galaxy S3 is better….” That’s a lot of reasons.

4. Increasing competition means lower profit margins and decelerating growth. Market valuations are never static, so forget the argument of how much cash they have. If you want cash, buy a bank. The stock price depends on “change,” either positive or negative. Decelerating growth is a negative change as it leads to decelerating profits, reduction in market share, and sometimes worse things.

5. Apple no longer has an edge, except “perception,” or “cache.” Sony had that years ago but now can’t make money anywhere. The name Sony eventually meant that you got less but at a higher price. I can see that happening to Apple.

6. Open systems, like Android, historically win out over “closed systems.” The older generation will remember Sony’s Betamax video recorder, a closed Sony system. It was technologically superior to the competing VHS of Panasonic, but VHS won out, because any company could license it. Eventually, Betamax disappeared.

7. And finally, my personal experience. I had finally decided to get the iPhone 5 because I have the other Apple products and it was “just easier” to stay with the Apple universe. I walked into an Apple store, I finally got the attention of a sales supervisor. I told him that I wanted to buy the iPhone. He asked: “Do you have an appointment.” I replied, “No, I don’t want to see a doctor, I just want to buy a phone.” He said, “let me see and maybe we can get you in tomorrow or the next day.”

For me that was the final confirmation that Apple’s peak growth was behind it. I walked out and eventually got the Galaxy S3. Because many retailers compete (yes, competition is great), I got discounts, rebates, etc. After using it now for about one week, I am convinced that Samsung will walk away with the market.

And that’s why I am bearish on Apple. AAPL is no longer a growth stock, but a value stock. I believe that the company will continue to disappoint the ardent bulls.

The above is not investment advice and I am not trying to convince anyone of my views. It’s the result of my work, analysis and observations based on trading the markets for about 40 years. You can accept it, reject it, or give it some thought. If you wish to stay up to date with my work, go to www.dohmencapital.com.

I have no connection with Android, Samsung, nor do I know their people. There is no conflict.

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Comments

have fun with your galaxy s3. Meanwhile, aapl, over 100 billion in cash, best brand in the world, hottest products in the world, and a pipeline that you don’t have even an ounce of imagination to think of, will be perfectly fine without you… hahahahahaaaaa!!!! I love it when these article come out on a day when the stock is down.,… See you at 800 …..

You are 100% wrong. Jony Ives is Apple not Steve Jobs. Jobs was the sales man. I will laugh my butt off when all the Fools can explain why Apple PE 12 and Amazon is over 3,000!!!! Really. a company making $0.08/share a year is worth 1/2 of Apple trades? Apple will have over $17/share this QTR. And the end of 2013 170+ Billion in CASH.

How can a company like Apple be worth 200 Billion and have 170+ Billion in the bank soon. I guess all those analysts need to get off their old crappy Dells running windows XP and notice the future is iOS. Ask anyone 16-40 what they use. One word. iPad.

I can’t wait for this hype and big boy selling is just the game that Obama loves. I’m a democrat and I didn’t vote for him (2 times!). Really. Just go to bed and wake up in 4 years. Soon the 401K will be called the 101Ks. LOL.

: )

I guess the crazy FORWARD OBAMA world we live in. RUN OFF THE CLIFF! I can’t wait!…

1. Every release of a new product under the new CEO… 2. There was a universal belief that Apple was a “one decision stock,”… 3. My analysis of the charts and price/volume suggested big professional selling…

I’d say your previous comments were very convincing to forego blind greed and take profits. So 1., 2. and 3. translate to: game, set and match. Thank you for another well reasoned opinion. And, yes, Apple is now an offshore bank :)

Apple will see $190 before it ever sees $700 again. Their products were golly gee whiz then. They are not now. I predict they will move into a service sector business like cable to keep themselves afloat. Sell now before they slowly but surely get ground into the ground.

I wouldn’t object to what you are saying. But you forgot to mention one crucial fact: Aplle is part of a tidal wave that will bring all competitors in this market further up – the trend to mobile internet. The demand for tablets and smartphones will keep growing for another two to three years and Apple is well positioned in this market.

Look at the headline: it talks about the stock price, not whether there will be lots of mobile or tablet sales in the industry. This is where so many foolish, naive, and inexperienced investors go wrong: they think that a cute product will provide the same profits from here to eternity. Polaroid, Kodak, and many others are gone. They had nice products at one time. An investor makes money on the stock, not on the amount of money the company has on its balance sheet, totally under-utilized. That’s another sign of mismanagement.

I am happy to see that there were some intelligent comments. Name calling is a sign of a lack of education.

I love reviewing the comments of arrogant people to see how wildly wrong they were. As a long time owner of Apple, I thank you for showing your ignorance! You’re a genius……..if you don’t write anything! LOL!

You sound like a child with article of why you won’t apple stock, so you went out and bought a galaxy s3, what are you, 15 years old? It’s easy to sit back and bash a company, but the truth is somewhat different, the company sells a lot, more than any other in the world. They create good quality products, and yes, Apple is in a tug of war with hedge fund managers getting together to move the stock how they need to move it in order to lock in huge profits. The truth of the matter is that within a few weeks, you people will start writing articles about how good apple is and their products. Because you get paid by hedge fund managers to write up these articles in favor of moving the stock one way or another. And January results will be coming in, so it will be in their interest to do that, so retail investors can get excited, buy at a higher price, then the game starts over again. The bad news comes out again and so the cycle continues… Wall Street is nothing more than a corrupt engine serving a few. Its stock manipulation through media, call it legal corruption, because there is no consequences to the people doing this…